Dozens of major U.S. retailers increased the interest rates on their store-branded credit cards to record levels in the year before the Federal Reserve began cutting rates. The move, aimed at bolstering profits during a period of sluggish sales, has left consumers grappling with higher costs and raised concerns about the ethics of such practices.<\/p>\n\n\n\n
A review of data from Bankrate.com<\/strong> found that at least 50 retailers, including Big Lots, Macy\u2019s, Gap, and Petco, raised the annual percentage rates (APRs) on their store-branded cards between September 2023 and September 2024.<\/p>\n\n\n\n Overall, the average APR on store cards climbed by 1.52 percentage points during this period, outpacing the 0.08-point increase for traditional credit cards.<\/p>\n\n\n\n The timing of these increases reveals a clear strategy by retailers and their banking partners. By raising rates ahead of anticipated Fed rate cuts, they protected their profit margins, ensuring higher returns even as the federal funds rate declined.<\/p>\n\n\n\n \u201cStore cards are big business,\u201d said Ted Rossman, senior industry analyst at Bankrate. He pointed out that some retailers derive a significant share of their profits from their credit card programs. For example, 49% of Macy\u2019s operating profit in 2022 came from its credit card revenue, according to Citi analyst Paul Lejuez.<\/p>\n\n\n\n Higher interest rates on store cards are particularly burdensome for consumers carrying balances. The average store card APR now sits at an all-time high, just as delinquencies on credit card payments have reached levels not seen since 2011.<\/p>\n\n\n\n Brian Robin, a Macy\u2019s cardholder with a strong credit score of 744, expressed frustration at the unexpected rate hike. \u201cWhy would you want to shop at a place that\u2019s charging you loan shark rates?\u201d Robin said, questioning the rationale behind the increase despite his solid payment history.<\/p>\n\n\n\n Meanwhile, some consumers, like Jasmine Matheney, learned the hard way about the risks of retail credit cards. Matheney, who maxed out a Nordstrom card at 18, struggled for years to recover from the debt. \u201cThey reel you in with discounts, but then you\u2019re stuck paying back that 40% and more,\u201d she said.<\/p>\n\n\n\n Retailers have cited the economic environment and industry standards to justify the rate hikes. Big Lots pointed to \u201crising credit losses and regulatory pressures,\u201d while Nordstrom emphasized its variable rate model, which is tied to the prime rate. Despite these explanations, many consumers and analysts see the hikes as profit-driven.<\/p>\n\n\n\n\n
Why Rates Rose<\/h2>\n\n\n\n
Impact on Consumers<\/h2>\n\n\n\n
Retailers Defend Their Decisions<\/h2>\n\n\n\n
A Shrinking Market<\/h2>\n\n\n\n